Ideology And Pragmatism In
Public Policy

An exchange at the
meeting between representatives of the Green Party and the
business community in Wellington a fortnight ago stimulated
the reflections in this talk. One of the Greens present
described support for free trade as an ‘ideological’
position. What did the speaker mean by ideological, I
wondered? After all, Adam Smith, Karl Marx and John Maynard
Keynes were all free traders. A pretty broad ideological
spectrum, you might think.

That’s not the first time I’ve
had occasion to reflect on the term ideology, of course.
Critics of New Zealand’s post-1984 economic reforms bandied
it around freely. Indeed, as a recent book on globalisation
put it:

It is close to a conventional wisdom that over
the past two decades a group of ideological fanatics, called
‘neo-liberals’, have succeeded in imposing their creed on an
innocent humanity, at the expense of democracy, prosperity,
equality, the environment, human rights, decent treatment of
labour and, indeed, everything that is good and wholesome.
This view of the history of the past two decades is almost
entirely mistaken.

First, while liberal ideas (not
‘neo-liberal’, since that is an incomprehensible piece of
neo-Marxist jargon) have made progress over the past two
decades, they have not done so through the offices of
passionate liberals. On the contrary, the policy changes
that go under the heading of ‘neo-liberal’ have been
introduced as often by long-standing socialists and
communists as by parties that would be considered on the
political right. The principal reason for this
transformation was failure of the alternatives, symbolized
so powerfully by the collapse of the Soviet empire between
1989 and 1991.

For a time, some theoreticians of the
left, including some in New Zealand’s Labour Party, tried to
find a ‘third way’ between socialism and a market economy.
The project failed; we seldom hear talk of the ‘third way’
today. In reality, the drive behind the market-oriented
reforms in New Zealand was the practical recognition that
alternative policies had been tested to destruction. The
focus of the reformers was on policies that worked – as
demonstrated by orthodox economic reasoning and results.

The Business Roundtable’s approach has been based on the
same principles, firmly grounded in experience.
Nevertheless, it is still sometimes put to me by critics
that our proposals are ‘ideological’ as opposed to
‘pragmatic’. This contrast is false. Everyone involved in
the debate about public policy argues on the basis of some
set of principles or ideas, whether

or not they are
conscious of them or make them explicit. Conversely, those
who want their ideas to have an impact on public policy have
to be ‘pragmatic’ in the sense that they must pay some
regard to the practicability of their proposals and the
compromises that may be necessary in implementing them.

The attempt to endow the term ‘ideological’ with
unfavourable connotations and ‘pragmatic’ with favourable
ones likewise involves a certain sleight of hand. The Oxford
English Dictionary (2nd edition) gives the following as the
primary meaning of ‘ideology’:

The science of ideas;
that department of philosophy or psychology that deals with
the origin and nature of ideas.

No problem there,
then. As the secondary meaning it offers this:

Ideal
or abstract speculation: in a deprecatory sense, unpractical
or visionary theorizing or speculation.

Note that
even this secondary meaning is not necessarily
‘deprecatory’. There is nothing intrinsically wrong, and
much intrinsically right, with ‘ideal or abstract
speculation’, even though the word ‘ideological’ can be used
in a way that conveys disapproval of it.

What then about
‘pragmatism’? One Oxford dictionary definition is “matterof-
fact treatment of things; attention to facts”. That’s
certainly something to aspire to. A further, political
meaning is attributed to the term, and it’s this that our
critics have in mind:

Theory that advocates dealing
with social and political problems primarily by practical
methods adapted to the existing circumstances, rather than
by methods which have been conformed to some
ideology.

I see nothing wrong with employing
“practical methods adapted to existing circumstances”, but
the issue is the implied contrast with “ideology”. That may
or may not exist. An ideologue, to use the term in a
pejorative sense, will use methods sanctioned by an ideology
even if they cannot be “adapted to existing circumstances”.

There is no sense in which a policy can be correct in
theory but wrong in practice: if the practice goes wrong,
the theory is defective (as socialism demonstrated). But the
deeper point is that, whatever practical methods are used,
there has to be some body of ideas that explains why they
work, even if those who employ those 3 methods are unaware
of them. Understanding what works and what doesn’t – which
we need to do if we are to improve our practices – involves
grasping the theory behind it.

What many critics are
doing, however, when they draw a contrast between the
‘ideological’ and the ‘pragmatic’ is to use these terms as
codes respectively for ‘less government’ (meaning that it’s
bad) and ‘more government’ (meaning that it’s good). For
example, David Skilling of the New Zealand Institute is
reported in the National Business Review of 6 August 2004 as
advocating a move away from a policy of avoiding distortions
in the private sector to a policy of selective intervention.
He is quoted as saying:

This is a less pure, more
pragmatic approach to economic policy that is aimed at
crowding-in economic activity and assisting New Zealand
business to create wealth, and is less concerned about the
possibility of crowding out.1

It isn’t obvious why a
policy of greater intervention should be “less pure”, “more
pragmatic” or more desirable than one of less intervention.
Surely the focus should be on which works better? Answering
this question requires some theory about how government
intervention affects the economy and society. As the saying
goes, there’s nothing so practical as a good theory. What
matters is which of the alternative theories is the sounder,
and that comes down to which of them is more consistent with
the evidence, as well as the values that they embody or
promote. I’m happy to defend the Business Roundtable’s
proposals on those terms. But let’s get away from the false
notion that certain policies are somehow ‘pragmatic’ by
definition, as if we know in advance that they will work,
whereas others are ‘ideological’, as if they are supported
regardless of whether or not they work.

Once we have
agreed that all positions about the role of government rest
on some general idea, or ‘theory’ if you like, about how
government works, to characterise policy proposals as either
‘ideological’ or ‘pragmatic’ is at best a confusion and at
worst a rhetorical trick that appeals to antiintellectualism
as a substitute for serious argument.

Of course, there
is always a market for anti-intellectualism, that is, an
impatient insistence that 1
http://www.nbr.co.nz/home/column_article.asp?id=9796&cid=18&cname=Opinion
4 we don’t need theories because the facts, once we have
them, speak for themselves. But facts never speak for
themselves. Even the simplest combination of data gives rise
to controversy about how it should be interpreted (just
consider, for example, the endless debate about the link
between gun control laws and gun-related crime).
Interpretation involves drawing some general idea, whether
sound or not, about how the world works. Serious policy
debate cannot proceed unless these ideas are articulated and
tested.

We can see why arguments for less government
attract the label ‘ideological’ and those for more
government ‘pragmatic’. The case for less government often
rests on chains of cause and effect that may be long and
even invisible, whereas the case for more government
typically moves swiftly (if often deceptively) from problem
to intervention to solution in an uncomplicated way.

For
example, the protectionist can point to the benefits of
import controls in terms of the jobs that have been saved
(at least for the moment), but the free trader can’t so
easily point to the costs of protectionism by identifying
the jobs that protection destroys or prevents being created.
Understanding the case for limited government requires a
certain effort of analysis and a willingness to evaluate a
wide range of evidence.

Not everyone is prepared to make
such an effort, yet there is a theory (or idea) behind
protectionism just as there is behind free trade.
Interestingly, free trade is a case of a policy that is
ultimately justified more on practical than theoretical
grounds. To be sure, it rests on the fundamental economic
principle of comparative advantage, but there are a number
of theoretical arguments for departing from that principle:
optimum tariff notions, strategic trade theory, infant
industry arguments and the like.

As a matter of
practical policy, however, the vast majority of professional
economists put aside these theories as unworkable and come
down on the side of free trade, and the evidence is
overwhelming that open economies outperform closed ones. The
Greens, however, seem impervious to facts: their opposition
to free trade does seem to be a matter of pure
ideology.

For reasons I’ll explain in a moment, it is
ironic that Keynes, arguably and unfortunately perhaps the
most influential economist of the twentieth century, should
have stressed the importance of ideas, even for self-styled
pragmatists. As he wrote:

The ideas of economists and
political philosophers, both when they are right and when
they are wrong, are more powerful than is commonly
understood. Indeed, the world is ruled by little else.
Practical men, who believe themselves to be quite exempt
from any intellectual influences, are usually the slaves of
some defunct economist. Madmen in authority, who hear voices
in the air, are distilling their frenzy from some academic
scribbler of a few years back . . . Sooner or later, it is
ideas, not vested interests, which are dangerous for good or
evil.

The irony of this is that Keynes himself became
a major example of those “defunct economists” who enslaved
“practical men”. It was Keynes’s prescription that the
balanced budget rule should be abandoned in times of
recession that, more than anything else, facilitated and
legitimised the socalled ‘pragmatic‘ growth of government
after World War II by appearing to release policy makers
from so-called ‘ideological’ constraints.

That was
emphatically not Keynes’s intention; he argued that budgets
should be balanced over the economic cycle, and that deficit
financing during recessions should be followed by surpluses
during booms. But, as he himself said, “ideas . . . are
dangerous for good or evil.”

Once the idea that
governments could routinely borrow to cover current spending
had gained ground in the wider society, why should they hold
back? It took years of inflation, recession and generally
disappointing economic performance to get that particular
genie back into the bottle, and even now one wonders how
secure the cork is.

To make it more secure, New Zealand
is one country that implemented a Fiscal Responsibility Act
to require governments to follow Keynes’ rule that budgets
should be balanced over the economic cycle. Finance minister
Michael Cullen has recently re-enacted that legislation: he
obviously doesn’t regard the balanced budget provision as
ideological or undemocratic.

But when the Business
Roundtable suggested, on largely pragmatic grounds, that
because of New Zealand governments’ tendencies to excessive
and wasteful spending, the rule should be supplemented by a
tax and expenditure limitation, whereby spending growth
should be constrained to the rate of population growth plus
inflation unless a government got support from taxpayers for
higher spending via a referendum, Dr Cullen denounced the
proposal as ideological and undemocratic.

Yet in
response to democratic pressures, many US states and several
countries with governments of different political
persuasions have adopted such a rule or variants of it. As
the Americans say, go figure! Another area where those who
bandy around the term ideology should look at themselves in
the mirror is the ownership of commercial enterprises.
Socialist ideology embraced the notion of “public ownership
of the means of production, distribution and exchange”.

Our current government is against privatisation of
state-owned enterprises, and indeed has moved down the path
of nationalisation. Yet the evidence is now compelling that
– not always, but on average and over time – privately owned
enterprises outperform state-owned enterprises in
competitive environments, and it is the general rule that
should inform sound public policy. Governments should not
bet against the odds with taxpayers’ money.

Thus while a
body of economic literature has grown up explaining why
private ownership of commercial enterprises is generally
superior to state ownership, the fundamental argument for
privatisation is pragmatic: it works. Another point to make
is that, just as ideas are inescapable, as Keynes argued, so
too is pragmatism, in the sense that in all walks of life we
have to make compromises. Business people compromise and do
deals the whole time.

Yet in a business setting,
pragmatism without an eye to principles and long-run goals
(for example, maximising shareholder value) can be ruinous.
The same is true in politics. Politics has been described as
the ‘art of the possible’, and that is true as far as it
goes. Yet we need to add two qualifications that preserve a
role for ideas in politics.

First, in making political
compromises politicians should still observe certain
principles: they can avoid what we recognise and condemn as
expediency. For example, in the war on terror that some
Western governments are waging, politicians may be tempted
to scrap all the normal safeguards against the abuse of
state power and to lock up terrorist suspects indefinitely
subject to minimal procedures or none at all.

Alternatively, even where they suspend habeas corpus and
detain suspects without charging them, they can set up
procedures to review cases and hear appeals. These are
matters of practical judgment. Sometimes politicians get it
right, sometimes they don’t, but the point is that we do
expect them to marry necessity with principle so that
certain important values are preserved.

Even in a dire
emergency, it isn’t necessary for governments to arrogate to
themselves absolute power and entirely evade the rule of
law. Thus we need to distinguish between principled
pragmatism and unprincipled expediency. The importance of
that distinction, rather than the one between ideology and
pragmatism, is perhaps the central message of this talk.

The second qualification to the idea of politics as the ‘art
of the possible’ that preserves a role for ideas is that
politicians can be guided by long-term goals as well as
short-term ones. Any government is inevitably preoccupied
with winning the next election, as indeed is the opposition.

But it’s possible to do this with an eye on longer-term
political achievements. Politicians who leave a positive
mark on history are those who can make the necessary skills
of everyday political survival serve the higher purpose of
achieving long-run benefits for their nations. In recent
history Margaret Thatcher is an outstanding example of such
a politician. She won three successive elections but also
carried out a counter-revolution in British economic policy
that greatly expanded conceptions of what was ‘politically
possible’ in other countries as well.

What is perhaps
less well known is that Thatcher was also a cautious
politician who usually knew when and where she had to
compromise. She avoided the inevitable showdown with the
coal miners’ union by making concessions to it where
necessary over several years, and stood firm against it only
when she was certain to win. Whether reforming governments
of the 1980s and 1990s could have gone further without
destroying their bases of support is debatable. Sir Roger
Douglas has always argued that it was when they called off
their reform drives that such governments lost support.

But their success in maintaining political and electoral
support as they abandoned failed economic policies testifies
to the ability of ordinary democratic politics to
accommodate necessary change. Those who like to label the
reforms of the Lange-Douglas government as anti-democratic
conveniently overlook the fact that it was re-elected in
1987 with an increased majority.

Traditionally, the
acceptable visions in democratic politics have been placed
on a left-right spectrum that signifies positions on the
desirable size of government and degree of redistribution.
As these positions represent value judgments they cannot
ultimately be proved or disproved, but they can be rendered
more or less plausible or practical in the light of evidence
and argument.

Political parties that want to see their
values successfully embodied in public policy have to be
open to new ideas. Much of what is ‘ideological’ in
politics, in the pejorative sense of being impractical,
comes from institutionalised attachment to means rather than
ends; more exactly, the adoption or retention of particular
measures (like state ownership of enterprises) becomes an
end in itself, regardless of whether those measures have the
effect that is claimed for them.

I would argue, for
example, that if the political ‘left’ is seriously committed
to social justice it has to generalise from the experience
of economic reform to reform of the welfare state.

Centrally planned and controlled education and health
systems have no more chance of realising egalitarian
aspirations than did our old economic regime of regulations
and state ownership, because they too inevitably operate
primarily in the interests of their employees (such as the
members of teachers’ and nurses’ unions) rather than the
general public.

Correspondingly, those on the political
‘right’ who favour a greater role for the private sector
need to attend to the issues of corporate governance raised
by cases of corporate wrongdoing, primarily by ensuring that
existing laws are enforced and by strengthening the property
rights of shareholders against the possibility of
malpractice by management. They should also seek to overcome
the old-fashioned, debilitating employer-employee divide by
promoting fully contractual relationships in which all
aspects of life in the workplace can be negotiated.

This
brings us back to policy think tanks like the Business
Roundtable. Precisely because the pressure on politicians to
compromise with immediate interests for short-term gain is
so great, their job is to frame and publicise the
‘first-best’ versions of policies for politicians to work
with.

They do need to make pragmatic judgments about
which new policy ideas are likely to be entertained by
public opinion, and to present them in imaginative and
appealing ways. However, their mission must be to expand the
politically possible, mindful that what today is accepted as
conventional wisdom yesterday seemed controversial and
radical. In principle, they act as conduits between, on the
one hand, the pure theoreticians, researchers and academics
who are professionally committed to the pursuit of knowledge
wherever it takes them, and, on the other hand, the
politicians who introduce the policies that embody new
knowledge.

The Business Roundtable has seen its role as
being to engage in advocacy that is accessible to lay people
(as the products of original research are likely to be) and
is not diluted by the pressure to placate special interests
that politicians are subjected to all the time. By taking
ideas and evidence seriously, it aims to make it easier for
politicians to introduce new and better
policies.

Politicians, for their part, are the ones best
placed to judge what is politically possible, and the
practical ways of implementing better policies. But the most
admired politicians are not those who timidly preside over
the status quo; they are the political entrepreneurs with
the will and ability to persuade voters why changes will
benefit them and future generations. In doing so, they will
invariably need to be armed with a body of ideas that
explains why the changes will work. Principled pragmatism of
this kind, with a sound conceptual base, is the best
strategy for advancing good public policy.

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